To amend the Internal Revenue Code of 1986 to provide tax incentives to encourage small business health plans.

October 9, 2004

Mr. BOSWELL (for himself and Mr. OSBORNE) introduced the following bill; which was referred to the Committee on Ways and Means

To amend the Internal Revenue Code of 1986 to provide tax incentives to encourage small business health plans.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

This Act may be cited as the `Health Care Relief Act of 2004'.

SEC. 2. FIRST $2,000 OF HEALTH INSURANCE PREMIUMS FULLY DEDUCTIBLE.

(a) In General- Subsection (a) of section 213 of the Internal Revenue Code of 1986 (relating to medical, dental, etc., expenses) is amended to read as follows:

`(a) Allowance of Deduction- There shall be allowed as a deduction the following amounts not compensated for by insurance or otherwise--

`(1) the amount by which the amount of expenses paid during the taxable year (reduced by the amount deductible under paragraph (2)) for medical care of the taxpayer, the taxpayer's spouse, and the taxpayer's dependents (as defined in section 152) exceeds 7.5 percent of adjusted gross income, plus

`(2) so much of the expenses paid during the taxable year for insurance which constitutes medical care under subsection (d)(1)(D) (other than for a qualified long-term care insurance contract) for such taxpayer, spouse, and dependents as does not exceed $2,000.'.

(b) Deduction Allowed Whether or not Taxpayer Itemizes Deduction- Section 62(a) of the Internal Revenue Code of 1986 (defining adjusted gross income) is amended by inserting after paragraph (18) the following new paragraph:

`(19) HEALTH INSURANCE PREMIUMS- The deduction allowed by section 213(a)(2).'.

(c) Effective Date- The amendments made by this section shall apply to taxable years beginning after December 31, 2003.

SEC. 3. CREDIT FOR HEALTH INSURANCE EXPENSES OF SMALL BUSINESSES.

(a) In General- Subpart D of part IV of subchapter A of chapter 1 of the Internal Revenue Code of 1986 (relating to business-related credits) is amended by adding at the end the following:

`SEC. 45G. SMALL BUSINESS HEALTH INSURANCE EXPENSES.

`(a) General Rule- For purposes of section 38, in the case of a small employer, the health insurance credit determined under this section for the taxable year is an amount equal to the applicable percentage of the expenses paid by the taxpayer during the taxable year for health insurance coverage for such year provided under a new health plan for employees of such employer.

`(b) Applicable Percentage- For purposes of subsection (a), the applicable percentage is--

`(1) in the case of insurance purchased as a member of a health benefit purchasing coalition (as defined in regulations prescribed by the Secretary), 40 percent, and

`(2) in the case of insurance not described in paragraph (1), 30 percent.

`(c) Limitations-

`(1) PER EMPLOYEE DOLLAR LIMITATION- The amount of expenses taken into account under subsection (a) with respect to any employee for any taxable year shall not exceed--

`(A) in the case of insurance purchased as a member of a coalition referred to in subsection (b)(1)--

`(i) $800 in the case of self-only coverage, and

`(ii) $2,000 in the case of family coverage, and

`(B) in any other case--

`(i) $600 in the case of self-only coverage, and

`(ii) $1,500 in the case of family coverage.

In the case of an employee who is covered by a new health plan of the employer for only a portion of such taxable year, the limitation under the preceding sentence shall be an amount which bears the same ratio to such limitation (determined without regard to this sentence) as such portion bears to the entire taxable year.

`(2) PERIOD OF COVERAGE- Expenses may be taken into account under subsection (a) only with respect to coverage for the 4-year period beginning on the date the employer establishes a new health plan.

`(3) EMPLOYER MUST BEAR 65 PERCENT OF COST- Expenses may be taken into account under subsection (a) only if at least 65 percent of the cost of the coverage (without regard to this section) is borne by the employer.

`(d) Definitions- For purposes of this section--

`(1) HEALTH INSURANCE COVERAGE- The term `health insurance coverage' has the meaning given such term by section 9832(b)(1).

`(2) NEW HEALTH PLAN-

`(A) IN GENERAL- The term `new health plan' means any arrangement of the employer which provides health insurance coverage to employees if--

`(i) such employer (and any predecessor employer) did not establish or maintain such arrangement (or any similar arrangement) at any time during the 2 taxable years ending prior to the taxable year in which the credit under this section is first allowed, and

`(ii) such arrangement provides health insurance coverage to at least 70 percent of the qualified employees of such employer.

`(B) QUALIFIED EMPLOYEE-

`(i) IN GENERAL- The term `qualified employee' means any employee of an employer and shall include a leased employee within the meaning of section 414(n).

`(3) SMALL EMPLOYER- The term `small employer' has the meaning given to such term by section 4980D(d)(2); except that--

`(A) only qualified employees shall be taken into account, and

`(B) such section shall be applied by substituting `100 employees' for `50 employees'.

`(e) Special Rules-

`(1) CERTAIN RULES MADE APPLICABLE- For purposes of this section, rules similar to the rules of section 52 shall apply.

`(2) AMOUNTS PAID UNDER SALARY REDUCTION ARRANGEMENTS- No amount paid or incurred pursuant to a salary reduction arrangement shall be taken into account under subsection (a).

`(3) INFLATION ADJUSTMENT- In the case of any taxable year beginning in a calendar year after 2004, each dollar amount contained in subsections (c)(1) and (d)(2)(B) shall be increased by an amount equal to--

`(A) such dollar amount, multiplied by

`(B) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting `calendar year 2003' for `calendar year 1992' in subparagraph (B) thereof.

Any increase determined under the preceding sentence shall be rounded to the nearest multiple of $50.

`(f) Termination- This section shall not apply to expenses paid or incurred by an employer with respect to any arrangement established on or after January 1, 2010.'.

(b) Credit to Be Part of General Business Credit- Section 38(b) of such Code (relating to current year business credit) is amended by striking `plus' at the end of paragraph (13), by striking the period at the end of paragraph (14) and inserting `, plus', and by adding at the end the following:

`(15) in the case of a small employer (as defined in section 45G(d)(3)), the health insurance credit determined under section 45G(a).'.

(c) No Carrybacks- Subsection (d) of section 39 of such Code (relating to carryback and carryforward of unused credits) is amended by adding at the end the following:

`(11) NO CARRYBACK OF SECTION 45G CREDIT BEFORE EFFECTIVE DATE- No portion of the unused business credit for any taxable year which is attributable to the employee health insurance expenses credit determined under section 45G may be carried back to a taxable year beginning before January 1, 2004.'.

(d) Denial of Double Benefit- Section 280C of such Code is amended by adding at the end the following new subsection:

`(d) Credit for Small Business Health Insurance Expenses-

`(1) IN GENERAL- No deduction shall be allowed for that portion of the expenses (otherwise allowable as a deduction) taken into account in determining the credit under section 45G for the taxable year which is equal to the amount of the credit determined for such taxable year under section 45G(a).

`(2) CONTROLLED GROUPS- Persons treated as a single employer under subsection (a) or (b) of section 52 shall be treated as 1 person for purposes of this section.'.

(e) Clerical Amendment- The table of sections for subpart D of part IV of subchapter A of chapter 1 of such Code is amended by adding at the end the following:

`Sec. 45G. Small business health insurance expenses.'.

(f) Effective Date- The amendments made by this section shall apply to amounts paid or incurred in taxable years beginning after December 31, 2003, for arrangements established after the date of the enactment of this Act.

SEC. 4. REFUNDABLE HEALTH INSURANCE COSTS CREDIT.

(a) Allowance of Credit-

(1) IN GENERAL- Subpart C of part IV of subchapter A of chapter 1 of the Internal Revenue Code of 1986 (relating to refundable personal credits) is amended by redesignating section 36 as section 37 and by inserting after section 35 the following new section:

`SEC. 36. HEALTH INSURANCE COSTS FOR UNINSURED INDIVIDUALS.

`(a) Allowance of Credit- In the case of an individual, there shall be allowed as a credit against the tax imposed by this subtitle for the taxable year an amount equal to the amount paid by the taxpayer during such taxable year for qualified health insurance for the taxpayer and the taxpayer's spouse and dependents.

`(b) Limitation- The amount allowed as a credit under subsection (a) for a taxable year shall not exceed $500.

`(c) Qualified Health Insurance- For purposes of this section, the term `qualified health insurance' means health insurance coverage (as defined in section 9832(b)(1)).

`(d) Special Rules-

`(1) COORDINATION WITH MEDICAL EXPENSE DEDUCTION- The amount which would (but for this paragraph) be taken into account by the taxpayer under section 213 for the taxable year shall be reduced by the credit (if any) allowed by this section to the taxpayer for such year.

`(2) COORDINATION WITH DEDUCTION FOR HEALTH INSURANCE COSTS OF SELF-EMPLOYED INDIVIDUALS- In the case of a taxpayer who is eligible to deduct any amount under section 162(l) for the taxable year, this section shall apply only if the taxpayer elects not to claim any amount as a deduction under such section for such year.

`(3) COORDINATION WITH DEDUCTION FOR ARCHER MSAS AND HSAS- In the case of a taxpayer who is eligible to deduct any amount under section 220 or 223 for the taxable year, this section shall apply only if the taxpayer elects not to claim any amount as a deduction under such section for such year.

`(4) DENIAL OF CREDIT TO DEPENDENTS- No credit shall be allowed under this section to any individual with respect to whom a deduction under section 151 is allowable to another taxpayer for a taxable year beginning in the calendar year in which such individual's taxable year begins.

`(5) COORDINATION WITH SECTION 35- If a taxpayer is eligible for the credit allowed under this section and section 35 for any taxable year, the taxpayer shall elect which credit is to be allowed.

`(e) Expenses Must Be Substantiated- A payment for insurance to which subsection (a) applies may be taken into account under this section only if the taxpayer substantiates such payment in such form as the Secretary may prescribe.

`(f) Regulations- The Secretary may prescribe such regulations as may be necessary to carry out the purposes of this section.'.

(b) Conforming Amendments-

(1) Section 162(l) of the Internal Revenue Code of 1986 is amended by adding at the end the following:

`(6) ELECTION TO HAVE SUBSECTION APPLY- No deduction shall be allowed under paragraph (1) for a taxable year unless the taxpayer elects to have this subsection apply for such year.'.

(2) Section 220(b) of such Code is amended by adding at the end the following:

`(8) ELECTION TO HAVE SUBSECTION APPLY- No deduction shall be allowed under subsection (a) for a taxable year unless the taxpayer elects to have this section apply for such year.'.

(3) Section 223(b) of such Code is amended by adding at the end the following:

`(8) ELECTION TO HAVE SUBSECTION APPLY- No deduction shall be allowed under subsection (a) for a taxable year unless the taxpayer elects to have this section apply for such year.'.

(4) Paragraph (2) of section 1324(b) of title 31, United States Code, is amended by inserting before the period `, or from section 36 of such Code'.

(5) The table of sections for subpart C of part IV of subchapter A of chapter 1 of the Internal Revenue Code of 1986 is amended by striking the last item and inserting the following:

`Sec. 36. Health insurance costs for uninsured individuals.

`Sec. 37. Overpayments of tax.'.

(c) Effective Date- The amendments made by this section shall apply to taxable years beginning after December 31, 2003.

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